It's becoming conventional wisdom that cash solves motivation issues, and that employees can and will do what they are motivated to do. On a recent change management discussion on CRM Guru, (registration required) someone wrote in for advice on how to motivate adoption of a new system more than a year after it was introduced. Only 40% of the account managers had moved to the system. Several people who posted to the discussion liked the idea of creating a performance incentive as a way to solve the problem. There are a lot of assumptions in this kind of thinking.
I got thinking about this again when Jonathan, my clever entrepreneurial stylist was cutting my hair. He told me a story about an ill-fated attempt to increase sales using cash incentives. (We have had some great conversations about business over the years, and he said I could tell this story.)
A few years ago, he wanted to increase the number of sales of highlights and colors. So he ran a campaign, and offered a $10 cash incentive to the stylists for all sales during the month of the campaign. Sales actually dropped.
What happened here?
Further investigation showed that the stylists were already getting about half of the revenue from a color, which is one of the more expensive products a salon sells. So the $10 was an increase of perhaps 10 - 20%. Since it was coming out of the owner's pocket, he was taking a reduction of the same percentage.
More importantly, they were already being well compensated for these sales.
But an incentive can have communication value as well -- it tells employees what your priorities are in the clearest possible terms. Your priorities are what you are prepared to pay for. This seems to have backfired as well.
- The employees didn't feel comfortable making very many recommendations in the first place, and the incentive did nothing to address this. (My personal favorite hypothesis)
- The employees didn't want to feel that their professional judgment and recommendations to customers could be purchased for the small sum of $10
- Employees started second-guessing their own motivation for recommending a color, and this caused them to reduce their recommendations
- The whole concept of a competition with their peers was in conflict with the dominant workgroup ethic -- a culture issue
- The employees resented the approach and wanted to teach management a lesson (Always a possibility, especially in a small work group)
- Customers got wind of the campaign and this influenced their buying behavior (Probably not in this situation, but this also does happen!)
We might also want to ask ourselves about the nature of the employment relationship. Hair stylists are not really salaried employees. They are independent free-agents in many respects.
So what might work better in future? Here's what I suggested to try next time:
- Ask the stylists to organize the campaign. Approach them with the challenge, i.e. "We need to increase the number of colors and highlights. Let's focus on this during the month of May". Ask for their suggestions. Learn what the challenges are from their perspective. Essentially, let them organize the campaign, and be supportive in the management role. Supportive means providing some budget (ie. up to $10 per sale, but not necessarily as incentive comp), establishing tracking, providing encouragement, being willing to try the ideas people come up with.
- For ongoing performance challenges, consider the nature of the relationship between the stylists (really free agents) and the salon. It might be useful to think of the employees as franchisees, and establish minimum standards for performance in order to continue being a part of the franchise organization. This cuts both ways, of course, and the franchise also needs to honor their end of the commitment.
Incentive pay can be a bit of a blunt instrument. If it could solve all the problems we try to make it solve, there would be little need for managers at all. Or consultants, for that matter.